Tag Archives: borrowing

The New York Times – A Return to a World Marx Would Have Known

Doug Henwood is editor of Left Business Observer, host of a weekly radio show originating on KPFA, Berkeley, and is author of several books, including “Wall Street: How It Works and For Whom” and “After the New Economy.”

I don’t see how you can understand our current unhappy economic state without some sort of Marx-inspired analysis.

Here we are, almost five years into an officially designated recovery from the worst downturn in 80 years, and average household incomes are more than 8 percent below where they were when the Great Recession began, and employment still 650,000 short of its pre-recession high.

Though elites are prospering, for millions of Americans, it’s as if the recession never ended.

How can this all be explained? The best way to start is by going back to the 1970s. Corporate profitability — which, as every Marxist schoolchild knows, is the motor of the system — had fallen sharply off its mid-1960s highs. Stock and bond markets were performing miserably. Inflation seemed to be rising without limit. After three decades of seemingly endless prosperity, workers had developed a terrible attitude problem, slacking off and, quaintly, even going out on strike. It’s no accident that Johnny Paycheck scored a No. 1 country hit with “Take This Job and Shove It” in 1977 — utterly impossible to imagine today.

This is where Marx begins to come in. At the root of these problems was a breakdown in class relations: workers no longer feared the boss. A crackdown was in order.

And it came, hard. In October 1979, the Federal Reserve began driving interest rates toward 20 percent, to kill inflation and restrict borrowing, creating the deepest recession since the 1930s. (It was a record we only broke in 2008/2009). A little over a year later, Ronald Reagan came into office, fired the striking air-traffic controllers, setting the stage for decades of union busting to follow. Five years after Johnny Paycheck’s hit, workers were desperate to hold and/or get jobs. No more attitude problem.

The “cure” worked for about 30 years. Corporate profits skyrocketed and financial markets thrived. The underlying mechanism, as Marx would explain it, is simple: workers produce more in value than they are paid, and the difference is the root of profit. If worker productivity rises while pay remains stagnant or declines, profits increase. This is precisely what has happened over the last 30 years. According to the Bureau of Labor Statistics, productivity rose 93 percent between 1980 and 2013, while pay rose 38 percent (all inflation-adjusted).

The 1 percent got ever-richer and more powerful. But there was a problem: a system dependent on high levels of mass consumption has a hard time coping with the stagnation or decline in mass incomes.The development of a mass consumer market after Marx died, with the eager participation of a growing middle class, caused a lot of people to say his analysis was obsolete. But now, with the hollowing out of the middle class and the erosion of mass purchasing power, the whole 20th century model of mass consumption is starting to look obsolete.

Borrowing sustained the mass consumption model for a few decades. Non-rich households borrowed to buy cars, buy food, pay medical bills, buy ever-more-expensive houses, and so on. Conveniently, rich households had plenty of spare cash to lend them.

That model broke apart in 2008 and has not — and cannot — be revived. Without the juice provided by spirited borrowing, demand remains constricted and growth rates, low. (See also: Europe.)

Raising the incomes of the bottom 90 percent of the population through higher wages and public spending initiatives — stifled since Reagan starting putting the squeeze on them — could change that. But the stockholding class has resisted that, and they have a lot of political power.

And an extraordinarily lopsided economy is the result. We didn’t expect that the 21st century would bring about a return of the 19th century’s vast disparities, but it’s looking like that’s just what’s happened.

Courtesy: The New York Times
http://www.nytimes.com/roomfordebate/2014/03/30/was-marx-right/a-return-to-a-world-marx-would-have-known?smid=fb-share

Pakistan is defaulting on sovereign debt

Power sector dues: Govt defaults on sovereign guarantees

By Shahbaz Rana

ISLAMABAD: Failure to honour its financial commitments to Independent Power Producers (IPP) has led to the first-ever sovereign default by the government in Pakistan’s history.

The default on sovereign guarantees – assurances the government provides to foreign investors – may not only unnerve the financial markets, but also downgrade the government’s creditworthiness, making it more expensive to borrow money.

“Today, the government of Pakistan has committed a sovereign default for the first time in the history of the country”, announced the IPPs Advisory Committee here on Tuesday.

“The government has defaulted on payments of roughly Rs45 billion to nine IPPs that generate 1,700 megawatts of electricity”, said Abdullah Yusuf, Chairman IPP Advisory Committee while talking to The Express Tribune. These nine IPPs started operations in 2004 and their total receivables amount to almost Rs232 billion.

Taking legal course

The IPPs gave a 30-day payment notice to the power purchaser, the Central Power Purchasing Agency (CPPA), followed by a 10-day notice to the government. Neither the CPPA nor the government cleared the overdue amounts, said the advisory committee.

The IPPs have exhausted all avenues available and the notice served to the government expired on Tuesday, the committee said.

After the default, the IPPs have issued a legal notice to the government for recovery by Thursday, May 10th, 2012 failing which the IPPs will follow a legal course.

Yusuf said the IPPs will go to the Pakistani courts.

“The default is a very serious matter and carries negative implications for the country”, Yusuf added. ….

Read more » The Express Tribune

Pakistan’s new economic agenda

by Manzur Ejaz

Then let’s start. Let’s take the economic agenda first:

1. Feudalism should be abolished completely

2. It will be a Social Democratic Economy…Public sector along with largely private enterprises. Public sector should be expanded to provide universal education and health services….

3. Everyone pays taxes to get services. At least everyone files taxes whether rich or poor. Role of indirect taxes should be minimized which is regressive but main source of government income. In a mixed economy taxes are the only instrument to distribute wealth on equitable basis. It is the only way to fund government operations without borrowing. And inflation or rising prices can only be checked if government borrowing is brought down to zero.

4. Electricity and gas should be supplied on continuous basis to run the industry and trade smoothly.

5. People living beyond their means and having wealth beyond known sources should be prosecuted and brought to justice.

6. End of monopolies or they should be regulated wherever necessary. Monopoly in media should be ended: Like the US one group should not have major newspaper in more than one region.

Read more : Wichaar